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Overview
Financial services mutual funds are sector-focused equity schemes that invest primarily in businesses linked to banking and financial services.
Their portfolios may include banks, insurers, non-banking financial companies, asset managers, exchanges, lenders, and other financial businesses.
Because these funds concentrate on one sector, their performance can differ sharply from diversified equity funds.
Explained
Financial services mutual funds invest predominantly in companies operating within the financial services ecosystem.
Depending on the scheme's mandate, its portfolio may include:
The portfolio is therefore much more concentrated than a diversified equity fund that can freely invest across unrelated industries.
Explained
The fund manager selects financial-sector companies based on the scheme's investment mandate.
Investment decisions may consider:
Interest rates and the credit cycle can have a particularly important influence on the sector.
For example, rising defaults can hurt lenders, while improving credit quality and stronger loan demand can support profitability.
The fund's NAV rises or falls with the value of its underlying portfolio.
Suitability
These funds may suit investors who:
They are generally not substitutes for diversified equity funds simply because banks and financial companies represent a large part of the Indian stock market.
Advantages
Investors can gain exposure to several types of financial businesses through one mutual fund.
Growth in credit, insurance, investing, digital payments, and formal financial services can create opportunities for companies operating in the sector.
Financial businesses require analysis of factors such as asset quality, lending practices, capital adequacy, and regulation. A professional fund manager performs this research while constructing the portfolio.
Rather than selecting a single bank or insurer, a fund can spread investments across several financial businesses. However, this does not provide the same diversification as investing across unrelated sectors.
Before you invest
A downturn affecting financial companies can hurt much of the portfolio simultaneously. This is the central risk of investing in a sector fund.
Changes in interest rates can affect borrowing demand, funding costs, margins, bond portfolios, and valuations.
Banks and lenders can suffer when borrowers fail to repay loans. Watch indicators such as non-performing assets, provisioning, and credit costs when assessing the sector.
Financial companies operate in a highly regulated environment. Changes introduced by regulators such as the RBI, SEBI, or IRDAI can affect different businesses within the portfolio.
A strong long-term story does not guarantee attractive returns if stocks are purchased at excessive valuations.
Many diversified Indian equity funds already hold major banks and financial companies. Check your existing holdings before adding a dedicated financial services fund.
Taxation
Financial Services Funds generally qualify as equity-oriented mutual funds when they satisfy the applicable conditions under Indian tax law.
For qualifying units held for more than 12 months, gains are generally treated as long-term capital gains.
Long-term capital gains covered by Section 112A are generally taxed at 12.5% above the applicable annual exemption threshold.
For qualifying units held for 12 months or less, gains are generally treated as short-term capital gains and taxed at the applicable special rate under Section 111A.
Tax provisions may change, so check the prevailing rules before redemption.
Step by step
Good to know
It is a sector-focused equity mutual fund that primarily invests in companies operating in banking and other financial services.
Yes. In addition to normal equity-market risk, they carry concentration risk because a large part of the portfolio is exposed to the same broad sector.
Interest rates, economic growth, loan demand, defaults, asset quality, regulation, liquidity, and company-specific performance can all influence financial stocks.
Not necessarily. A broader financial services strategy can include banks as well as insurers, NBFCs, asset managers, exchanges, and other financial businesses, subject to the scheme mandate.
Most open-ended sectoral mutual funds generally provide an SIP facility, subject to individual scheme terms.
Recap
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FUND
IDBI Banking & Financial Services Fund Direct Plan GrowthEquity Financial Services₹16.29
0.31%
18.73%
21.91%
9.92%
Invesco India Financial Services Fund Direct Plan GrowthEquity Financial Services₹172.36
2.1%5.94%
16.55%
13.73%
SBI Banking & Financial Services Direct Reinvestment Inc Dist cum Cap WdrlEquity Financial Services₹42.58
1.9%2.62%
15.17%
12.67%
Baroda BNP Paribas Banking and Financial Services Fund Direct GrowthEquity Financial Services₹55.21
2.11%3.54%
13.26%
11.8%
UTI Banking and Financial Services Fund-Direct Income Reinvestment Inc Dist cum Cap WdrlEquity Financial Services₹85.56
1.78%4.52%
12.07%
11.6%
Sundaram Financial Services Opportunities Fund Direct Plan Reinvestment Inc Dist cum Cap Wdrl OptionEquity Financial Services₹33.24
2.02%9.05%
12.04%
13.63%
HDFC Banking & Financial Services Fund Direct GrowthEquity Financial Services₹18.61
1.8%7.31%
11.81%
12.18%
Nippon India Banking & Financial Services Fund Direct Plan - GrowthEquity Financial Services₹691.73
1.9%4.56%
11.57%
13.47%
Mirae Asset Banking and Financial Services Fund Direct GrowthEquity Financial Services₹22.89
1.79%4.17%
11.38%
12.38%
T
Tata Banking & Financial Services Fund Direct GrowthEquity Financial Services₹51.05
2.04%2.97%
10.75%
11.91%
IDBI Banking & Financial Services Fund Direct Plan Income AnnuallyEquity Financial Services₹16.29
0.31%18.73%
21.91%
9.92%
Invesco India Financial Services Fund Direct Plan Reinvestment of Income Dist cum Capital WtdrwlEquity Financial Services₹88.71
2.1%5.92%
16.52%
13.7%
SBI Banking & Financial Services Direct GrowthEquity Financial Services₹47.64
1.9%0.06%
14.11%
12.23%
Baroda BNP Paribas Banking and Financial Services Fund Direct Reinvst of Inc Dis cumCapWdrlEquity Financial Services₹23.14
2.11%2.49%
12.34%
11.1%
UTI Banking and Financial Services Fund-Direct Growth OptionEquity Financial Services₹218.62
1.78%4.52%
12.07%
11.6%
Sundaram Financial Services Opportunities Fund Direct Plan Growth OptionEquity Financial Services₹121.89
2.02%7.1%
11.88%
13.75%
HDFC Banking & Financial Services Fund Direct Payout of Income Distribution cum capital withdrawalEquity Financial Services₹16.45
1.8%4.61%
10.96%
11.75%
Nippon India Banking & Financial Services Fund Direct Plan Reinvestment of Income Dis cum Cptl WdrlEquity Financial Services₹100.47
1.9%3.91%
11.05%
13.06%
Mirae Asset Banking and Financial Services Fund Direct Reinvestment of Income Dis cum Cptl WdrlEquity Financial Services₹22.78
1.79%4.14%
11.33%
12.33%
T
Tata Banking & Financial Services Fund Direct Reinvestment of Income Distribution cum Capital WtdrwlEquity Financial Services₹49.45
2.04%2.48%
10.48%
11.7%
Showing 1–20 of 72
